New Article Alert!
Sign up to get notified of new articles.
click here.
| More
    

Odyssey Marine Exploration (OMEX): A Shipwreck of Titanic Proportions

by Sonya Colberg, Senior Editor - 7/18/2016 11:17:41 AM

Odyssey Marine Exploration (OMEX) dives to recover treasures from shipwrecks.

But its current project may be the most challenging yet ... a desperate dive to recover its own shipwrecked company.

While investors may find other viewpoints here, TheStreetSweeper sees one titanic disaster in the making. Here's why:

*1. Poof: Cash, Assets, Don Diego Hope

The company reported, as of March 31, operating cash had fallen to $2.8 million ... At the same time the company is burning through $2.7 million in just one quarter.

So OMEX appears to be operating on fumes.

At the same time, OMEX is struggling with debt deals and owns virtually no assets.

Filings state: "we have pledged the majority of our remaining assets to MINOSA, and its affiliates, and to Monaco, leaving us with few opportunities to raise additional funds from our balance sheet.”

OMEX's financial lifeboats recently have been anchored on expectations that Mexico approve the Don Diego permit. But Mexican authorities denied this critical application.

The Don Diego represents a Hail Mary business restructuring for OMEX and, in our view, another reason for investors to brace for failure. Read on….  

*2. Mexico: Application Denied

Way back in 1994, the company began navigating the thrilling but choppy waters of undersea excavation and recovery.

OMEX found five major shipwrecks over those 22 years but lost $123 million in the process, Bloomberg reports.

In 2007, the company began a very public 5-year battle with Spain over gold and silver recovered from the "Black Swan" warship. OMEX lost the loot and a federal judge ordered the company to pay $1 million for "bad faith and abusive litigation."

In the midst of that public drama, the company restructured operations in 2010 to focus on deep water seabed exploration of minerals.

Much hope went into the Don Diego seabed deposit off the Mexico coast - considered the restructuring centerpiece -  and shares ran up around $9 in early April.

Then on April 11, Mexico denied the company's environmental permit application amid concerns about the environmental impact on sea turtles. OMEX plans to dredge Don Diego's phosphate rock lurched to a halt and the stock took a 55% dive.

(Source: Yahoo Finance)

OMEX is diving deeper and deeper  ...

*3. Delisting

Now OMEX is at the brink of being delisted. Nasdaq notified the company May 23 that its market value had fallen below the $35 million minimum. To regain compliance, Florida-based OMEX must reach and maintain that amount for at least 10 days by Nov. 21.

The company's valuation is about $13 million short. And at a $22 million valuation, OMEX is, in our view, extremely overvalued.

*4. Exploration Vessel Sold: Quarterly Loss Explodes

The company sold its exploration boat in May. Now it plans to rent boats to conduct explorations.

The same June 7 8-K containing that news also includes this odd statement:  "As communicated in a press release on May 12, 2016, the Company expects to at least double its revenue from its marine services activities between the first quarter and the second quarter of 2016."

Let's compare this extremely promotional fluff with reality ...

Marine services last quarter generated $0.58 million.

The company last quarter lost $4 million.

*5. Goodbye: Chief Financial Officer Flees

The long-time CFO jumped ship last month. When the money-guy leaves, the company's usually in deep trouble:

  Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

As of June 8, 2016, as part of Odyssey Marine Exploration Inc.’s on going cost-cutting strategy, one full-time executive position has been eliminated. As a result of this restructuring, former Chief Financial Officer, Philip S. Devine, is no longer with the company. Jay A. Nudi, Odyssey’s current Chief Accounting Officer and Treasurer, has assumed the additional duties as Interim Chief Financial Officer.

Such severe cost-cutting is necessary but experience shows that last-ditch effort frequently prolongs the pain. Think of Sears and KMart.

*6. Desperate: Revenue, Earnings

The chief financial officer may have been relieved to extract himself from OMEX and its perilous revenue and earnings trend:

(Source: Company SEC filing)

Just since 2013, revenue has dropped 77% and negative earnings have accelerated 98%.

7. Doubtful: Ability to Operate

Company filings refer to the failed restructuring centerpiece - the Don Diego application -  and warn: "the April 2016 decision has delayed our expected cash inflows from this project. Therefore, the factors noted above raise doubt about our ability to continue as a going concern."

Yet OMEX market valuation now is $20 million..  thanks to hope and hype floating on a market misunderstanding of OMEX's desperate situation... virtually no cash, no salvageable business plan.

*Conclusion:

Any OMEX treasures washed away long ago and this shipwreck is slipping into the deepest, darkest depths. They're loading the lifeboats, the sharks are swimming and Kevin O'Leary is hollering, "Never cry for money. It doesn't cry for you." In our view, the stock goes to zero.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in OMEX and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.

Share



To add comments please goto: Our Forum

For Previous Stories Click Here!


| More